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There is the thinking, one that I don't subscribe to, that says that insider buys are a strong bullish sign. The Globe & Mail picks up an Associated Press story pointing out how insider buys have provided poor signals in the last year:

The latest high-profile insider purchase to draw attention is that of Bank of America Corp. CEO Ken Lewis, who spent more than $2-million (U.S.) buying 400,000 shares of his struggling bank in late January and early February.

These stories frequently have unhappy endings, though, for investors who try to emulate an insider's buys.

Take the case of Krispy Kreme Doughnuts Inc. Two days after it reported its first-ever loss in May, 2004, CEO Scott Livengood bought 24,000 shares at $20.77 in an apparent show of confidence.

Some investors believed that was a promising sign of better things to come, at a time when overexpansion and changing dietary habits had hurt results and the stock price had been cut in half in just months.

But if you bet dollars to doughnuts on it being a strong "buy" signal, you'd have been very wrong. Eight months of continuously bad news followed - including plunging profits, a federal securities investigation and allegations of corporate deceit - Mr. Livengood was out as CEO and the stock price was under $9. Today each share is worth not much more than a $1.

Talk about bad timing. The shares lost more than half their value in 10 weeks during the market meltdown. As of last week Mr. Dell had lost $55-million on the investment.

I'm not knowledeable about academic research but my impression is that academic studies are inconclusive when it comes to insider buying. I have seen some positive indications but have also seen some studies that say insider buying provided no meaningful bullish signal.

During the stock market crash of 2008, many insiders were buying throughout the collapse. You can literally look at any of the distressed companies and see insiders buying heavily all the way down. The most notable, since I follow them closely, are the bond insurers. The executives of Ambac had been buying shares, along with Jay Brown of MBIA, who seems to have put most of his net worth into the company. Edward Lampert of Sears has also been buying stock while the share price collapsed.

I personally don't care about insider buys because I generally assume that insiders are very poor investors. They may be good businesspeople or have the skill, contacts, and personality to be directors, but they are certainly not good investors.

Furthermore, since I'm a contrarian, a lot of the beaten-down and declining companies I have looked at have collapsed or bankrupt while insiders purchase shares. My feeling is that insiders are very bullish on their companies and essentially go down with the ship. A noble thing perhaps but not providing any positive signalling to investors.